Chapter 9 Sample Problems

4. A Celty jet costs $28,000,000 and is expected to fly $200,000,000 miles during its 10-year life. Residual value is expected to be zero because the plane was used when acquired. If the plane travels 1,000,000 miles the first year, how much depreciation should record under the units-of-production method? (Round the depreciation per unit to two decimal places.)

5. A copy machine cost $45,000 when new and has accumulated depreciation of $44,000. Suppose Print and Photo Center junks this machine, receiving nothing. What is the result of the disposal transaction?

6. A copy machine cost $45,000 when new and has accumulated depreciation of $44,000. Suppose Print and Photo Center sold the machine for $1,000. What is the result of this disposal transaction?

• 9. Liberty Corporation reported beginning and ending total assets of $25,000 and $22,000, respectively. Its net sales for the year were $18,800. What was Liberty’s asset turnover ratio?

10. A truck costs $50,000 when new and has accumulated depreciation of $35,000. Suppose Wilson Towing exchanges the truck for a new truck. The new truck has a market value of $60,000, and Wilson pays cash of $40,000. Assume the exchange has commercial substance. What is the result of this exchange?

11. Deadwood Properties bought three lots in a subdivision for a lump-sum price. An independent appraiser valued the lots as follows:

Deadwood paid $435,000 in cash. Record the purchase in the journal, identifying each lot’s cost in a separate Land account. Round decimals to two places, and use the computed percentages throughout. (Record a single compound journal entry. Record debits first, then credits. Select the explanation on the last line of the journal entry table.)

12. Mama’s Fried Chicken bought equipment on January 2, 2016, for $18,000. The equipment was expected to remain in service for four years and to perform 5,000 fry jobs. At the end of the equipment’s useful life, Mama’s estimates that its residual value will be $3,000. The equipment performed 500 jobs the first year, 1,500 the second year, 2,000 the third year, and 1,000 the fourth year.

Requirements1.Prepare a schedule of depreciation expense, accumulated depreciation, and book value per year for the equipment under the three depreciation methods. Show your computations. Note: Three depreciation schedules must be prepared.2.Which method tracks the wear and tear on the equipment most closely?

13. Boston Hardware Consultants purchased a building for $402,000 and depreciated it on a straight-line basis over a 30-year period. The estimated residual value is $102,000. After using the building for 15 years, Boston realized that wear and tear on the building would wear it out before 30 years and that the estimated residual value should be $86,000. Starting with the 16th year, Boston began depreciating the building over a revised total life of 20 years using the new residual value.

Journalize depreciation expense on the building for years 15 and 16. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.)

14. During 2016, Lenora Corporation completed the following transactions:Jan. 1 Traded in old office equipment with book value of $30,000 (cost of $101,000 and accumulated depreciation of $71,000) for new equipment. Lenora also paid $70,000 in cash. Fair value of new equipment is $101,000. Assume the exchange had commercial substance.Apr. 1 Sold equipment that cost $24,000 (accumulated depreciation of $20,000 through December 31 of the preceding year). Lenora received $1,600 cash from the sale of the equipment. Depreciation is computed on a straight-line basis. The equipment has a five-year useful life and a residual value of $0.Dec. 31 Recorded depreciation as follows:

Office equipment is depreciated using the double-declining-balance method over four years with a $9,000 residual value.

Record the transactions in the journal of Lenora Corporation. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.)